FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended October 31, 1999 Commission file number 1-5838
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NCH CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 75-0457200
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P.O. Box 152170
2727 Chemsearch Blvd.
Irving, TX 75015-2170
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(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, include area code (972) 438-0211
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at December 6, 1999
-------------------------- -------------------------------
Common Stock, $1 par value 5,408,288
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NCH CORPORATION
INDEX
Page No.
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Part I. Financial Information:
Consolidated Balance Sheets --
October 31, 1999 and April 30, 1999 3
Consolidated Statements of Income --
Three Months and Six Months Ended
October 31, 1999 and 1998 4
Consolidated Statements of Cash Flows --
Six Months Ended October 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6 - 11
Management's Discussion and Analysis of
Financial Condition and Results of Operations 12 - 27
Part II. Other Information 28
NCH CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(In Thousands Except Share and Per Share Data)
October 31, April 30,
1999 1999
-------- --------
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $ 34,161 $ 19,814
Marketable securities 6,024 3,187
Accounts receivable, net 145,543 139,124
Inventories 89,157 94,191
Prepaid expenses 10,178 9,493
Deferred income taxes 19,846 21,454
-------- --------
Total Current Assets 304,909 287,263
-------- --------
Property, Plant and Equipment 193,002 192,927
Accumulated depreciation 118,419 116,678
-------- --------
74,583 76,249
-------- --------
Deferred Income Taxes 32,332 31,454
-------- --------
Other 17,986 16,040
-------- --------
Net assets of discontinued operations - 19,597
-------- --------
Total $429,810 $430,603
======== ========
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 5,285 $ 5,318
Current maturities of long-term debt 259 278
Accounts payable 40,441 44,376
Accrued expenses 30,304 29,128
Income taxes payable 19,745 23,930
Dividends payable 1,893 1,893
-------- --------
Total Current Liabilities 97,927 104,923
-------- --------
Long-term Debt, less current maturities 953 1,104
-------- --------
Retirement and Deferred Compensation Plans 117,940 115,162
-------- --------
Stockholders' Equity
Common stock, par value $1 per share,
authorized 20,000,000 shares.
Issued 11,769,304 shares 11,769 11,769
Additional paid-in capital 12,724 12,714
Retained earnings 498,076 491,685
Accumulated other comprehensive loss (39,104) (36,279)
-------- --------
483,465 479,889
Less treasury stock
(6,361,016 and 6,361,010 shares) 270,475 270,475
-------- --------
212,990 209,414
-------- --------
Total $429,810 $430,603
======== ========
The accompanying notes are an integral part of these financial statements.
NCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
(In Thousands Except Per Share Amounts)
(Unaudited)
Three Months Ended Six Months Ended
October 31, October 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Net Sales $181,283 $174,711 $365,579 $356,562
Operating Expenses
Cost of sales, including
warehousing and commissions 97,321 92,525 194,334 188,665
Marketing and administrative
expenses 69,686 68,499 144,527 142,287
-------- -------- -------- --------
167,007 161,024 338,861 330,952
-------- -------- -------- --------
Operating Income 14,276 13,687 26,718 25,610
Other Expenses
Revaluation of foreign
currencies (98) (1,016) (903) (1,427)
Interest income 305 334 558 1,073
Interest expense (941) (1,316) (2,002) (2,176)
-------- -------- -------- --------
Income from Continuing
Operations before
Income Taxes 13,542 11,689 24,371 23,080
Provision for Income Taxes 5,635 5,255 10,026 10,196
-------- -------- -------- --------
Income from Continuing
Operations 7,907 6,434 14,345 12,884
-------- -------- -------- --------
Discontinued Operations:
Loss from Discontinued
Operations, net of
income taxes (682) (123) (859) (87)
Loss on Disposition of
Discontinued Operations,
net of income tax of $1,782 (3,309) - (3,309) -
-------- -------- -------- --------
Net Income $ 3,916 $ 6,311 $ 10,177 $ 12,797
======== ======== ======== ========
Weighted Average Number of
Shares Outstanding
Basic 5,408 5,604 5,408 5,866
======== ======== ======== ========
Diluted 5,408 5,615 5,408 5,881
======== ======== ======== ========
Earnings Per Share from
Continuing Operations
Basic $ 1.46 $ 1.15 $ 2.65 $ 2.20
======== ======== ======== ========
Diluted $ 1.46 $ 1.15 $ 2.65 $ 2.19
======== ======== ======== ========
Total Earnings Per Share
Basic $ .72 $ 1.13 $ 1.88 $ 2.18
======== ======== ======== ========
Diluted $ .72 $ 1.12 $ 1.88 $ 2.18
======== ======== ======== ========
Cash Dividend Paid Per Share $ .35 $ .35 $ .70 $ .70
======== ======== ======== ========
Cash Dividend Declared Not Paid $ .35 $ .35 $ .35 $ .35
======== ======== ======== ========
The accompanying notes are an integral part of these financial statements.
NCH CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
Six Months Ended
October 31,
--------------------
1999 1998
-------- --------
Cash Flows from Operating Activities
Income from Continuing Operations $ 14,345 $ 12,884
Adjustments to reconcile income from
Continuing Operations to net cash provided
by Continuing Operations:
Depreciation and amortization 6,054 6,641
Provision for losses on accounts receivable 2,744 2,622
Deferred income taxes 665 (2,002)
Retirement and deferred compensation plans 2,823 3,408
Other noncash items (306) 521
Changes in assets and liabilities, excluding net
assets acquired in the purchase of businesses:
Accounts receivable 1,410 (4,018)
Inventories 4,539 (2,920)
Prepaid expenses (1,097) (1,782)
Accounts payable, accrued expenses and
income taxes payable (2,243) 1,090
Other noncurrent assets (776) (434)
-------- --------
Net cash provided by Continuing Operations 28,158 16,010
-------- --------
Cash flow from Discontinued Operations (336) 268
-------- --------
Net cash provided by operating activities 27,822 16,278
-------- --------
Cash Flows from Investing Activities
Sales of property, plant and equipment 1,385 271
Purchases of property, plant and equipment (5,262) (6,845)
Redemptions of marketable securities 2,084 101,236
Purchases of marketable securities (4,912) (4,942)
Acquisitions of business (1,341) (1,843)
Other (1,005) (1,005)
-------- --------
Net cash provided (used) in investing activities (9,051) 86,872
-------- --------
Cash Flows from Financing Activities
Proceeds from notes payable 446 1,165
Payments of notes payable (270) (3,231)
Payments of long term debt (169) (204)
Borrowing of cash surrender values 1,143 2,023
Payments of dividends (3,786) (3,920)
Purchase of treasury stock - (95,319)
Proceeds from exercise of stock options - 514
-------- --------
Net cash used in financing activities (2,636) (98,972)
-------- --------
Effect of Exchange Rate Changes on Cash
and Cash Equivalents (1,788) (442)
-------- --------
Net Increase in Cash and Cash Equivalents 14,347 3,736
Cash and Cash Equivalents at Beginning of Year 19,814 17,139
-------- --------
Cash and Cash Equivalents at End of Period $ 34,161 $ 20,875
======== ========
The accompanying notes are an integral part of these financial statements.
NCH CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
---------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary (consisting of only
normal re-occurring accruals) to present fairly NCH Corporation's
financial position as of October 31, 1999, the results of its operations
for the three and six months ended October 31, 1999 and 1998, and cash
flows for the six months then ended.
The accounting policies followed by NCH Corporation (the Company) are set
forth in Note 1 to the Company's consolidated financial statements in the
1999 NCH Corporation Annual Report to Shareholders, which is included in
Part II of Form 10-K.
The results of operations for the three and six month periods ended
October 31, 1999, are not necessarily indicative of the results to be
expected for the full year.
2. Discontinued Operations
-----------------------
On October 29, 1999, the Company signed an asset purchase agreement to
sell substantially all the net assets of Resource Electronics Inc., a
subsidiary of the Company, to Carlton-Bates Company. This sale was
closed on November 11, 1999. The net assets and liabilities that were
transferred consisted primarily of accounts receivable, inventories, fixed
assets, and accounts payable. The selling price for these net assets was
$12,623,000 in cash and was received by the Company in November 1999.
This amount is included in accounts receivable at October 31, 1999 in the
accompanying Consolidated Balance Sheets.
Operating results and cash flows of Resource Electronics for the three and
six months ended October 31, 1999, are shown separately in the
accompanying Consolidated Statements of Income and Consolidated Statements
of Cash Flows. The consolidated financial statements for prior periods
have been restated and the financial position, operating results, and cash
flows of Resource Electronics are also shown separately as discontinued
operations.
Net sales of Resource Electronics for the three months ended October 31,
1999 and 1998 were $16,555,000 and $16,441,000, respectively. Net sales
of Resource Electronics for the six months ended October 31, 1999 and 1998
were $32,493,000 and $33,446,000, respectively. These amounts are not
included in net sales in the accompanying Consolidated Statements of
Income.
As shown on the accompanying Consolidated Statements of Income, amounts
relating to discontinued operations are as follows (in thousands except
per share amounts):
Three Months Ended Six Months Ended
October 31, October 31,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
Loss from Discontinued
Operations before taxes $(1,043) $ (127) $(1,252) $ (169)
Income Taxes 361 4 393 82
------- ------- ------- -------
Loss from Discontinued
Operations $ (682) $ (123) $ (859) $ (87)
======= ======= ======= =======
Loss on Disposition of
Discontinued Operations
before taxes $(5,091) - $(5,091) -
Income Taxes 1,782 - 1,782 -
------- ------- ------- -------
Loss on Disposition of
Discontinued Operations $(3,309) $ - $(3,309) $ -
======= ======= ======= =======
Per share - basic and diluted
Loss from Discontinued
Operations $ (0.13) $ (0.02) $ (0.16) $ (0.01)
Loss on Disposition of
Discontinued Operations $ (0.61) - $ (0.61) -
------- ------- ------- -------
Total from Discontinued
Operations $ (0.74) $ (0.02) $ (0.77) $ (0.01)
======= ======= ======= =======
Net assets to be disposed of, at their expected net realizable values,
have been separately classified in the accompanying Consolidated Balance
Sheets at April 30, 1999. These primarily consist of accounts receivable,
inventories, and fixed assets. The April 30, 1999 consolidated financial
statements and footnotes have been restated to conform with the current
year's presentation.
3. Inventories
-----------
Inventories consisted of the following (in thousands of dollars):
October 31, April 30,
1999 1999
-------- --------
Raw Materials $ 13,766 $ 13,772
Finished Goods 73,908 78,901
Sales Supplies 1,483 1,518
-------- --------
$ 89,157 $ 94,191
======== ========
4. Earnings Per Share
------------------
Basic earnings per share are computed by dividing net income for the
period by the weighted average number of shares of common stock
outstanding for the period. Diluted earnings per share are determined by
dividing net income by the weighted average number of shares of common
stock and common stock equivalents outstanding. Stock options are the
Company's only potential common stock equivalents and are considered in
the diluted earnings per share calculations if dilutive. For the three
and six month periods ended October 31, 1999, all options (totaling
305,379) were excluded as their effect would have been antidilutive. For
the three month period ended October 31, 1998, options totaling 77,324
were excluded as their effect would have been antidilutive. For the six
month period ended October 31, 1998, all options were included as their
effect was dilutive for that period.
5. Comprehensive Income
--------------------
The components of comprehensive income, net of related tax, for the
three-month and six-month periods ended October 31, 1999 and 1998 are as
follows (in thousands):
Three Months Ended Six Months Ended
October 31, October 31,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
Net income $ 3,916 $ 6,311 $10,177 $12,797
Unrealized gain (loss)
on available-for-sale
securities (2) 6 6 (105)
Foreign currency
translation
adjustment (84) (1,953) (2,831) (1,864)
------- ------- ------- -------
Comprehensive income $ 3,830 $ 4,364 $ 7,352 $10,828
======= ======= ======= =======
The components of accumulated other comprehensive loss, net of related
tax, at October 31, 1999 and April 30, 1999, are as follows (in
thousands):
October 31, April 30,
1999 1999
-------- --------
Unrealized gain on available-
for-sale securities $ 19 $ 13
Foreign currency translation
adjustment (39,123) (36,292)
-------- --------
Accumulated other
comprehensive loss $(39,104) $(36,279)
======== ========
6. Segment Information
-------------------
At April 30, 1999, the Company adopted Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information", which changed the way the Company externally reports
information about its operating segments. The Company's segments are based
on the organization structure that is used by management for making
operating and investment decisions and for assessing performance. Based
on this management approach, the Company has five segments: Chemical
Specialties, Plumbing Products Group, Partsmaster Group, Landmark Direct
Group, and Other Product Lines. The Company evaluates the performance of
its segments primarily based on operating profit. All intercompany
transactions have been eliminated, and intersegment revenues are not
significant. In calculating operating profit for individual segments,
administrative expenses incurred at the Company's corporate headquarters
that are common to more than one segment are allocated on a usage basis.
Note that the previous year-end disclosures included the Resource
Electronics segment, which is now included in discontinued operations.
The following tables present a summary of the Company's segments for the
three-month and six-month periods ended October 31, 1999 and 1998:
Net Sales Net Sales
------------------ -------------------
Three Months Ended Six Months Ended
October 31, October 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Chemical Specialties $ 99,805 $101,172 $205,199 $211,313
Plumbing Products Group 29,879 29,923 60,658 58,958
Partsmaster Group 20,360 19,558 42,183 40,176
Landmark Direct Group 10,791 8,161 19,624 15,912
Other Product Lines 20,448 15,897 37,915 30,203
-------- -------- -------- --------
Net Sales $181,283 $174,711 $365,579 $356,562
======== ======== ======== ========
Operating Profit Operating Profit
------------------- -------------------
Three Months Ended Six Months Ended
October 31, October 31,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Chemical Specialties $ 7,397 $ 8,317 $14,320 $17,954
Plumbing Products Group 2,148 1,122 4,298 1,552
Partsmaster Group 2,377 2,130 4,380 3,905
Landmark Direct Group 1,044 848 983 1,099
Other Product Lines 2,036 1,918 4,356 2,369
-------- -------- -------- --------
Total segment operating profit $15,002 $14,335 $28,337 $26,879
-------- -------- -------- --------
Unallocated Corporate expenses (726) (648) (1,619) (1,269)
Revaluation of foreign currencies (98) (1,016) (903) (1,427)
Interest Income 305 334 558 1,073
Interest Expense (941) (1,316) (2,002) (2,176)
-------- -------- -------- --------
Income from Continuing
Operations before
Income Taxes $13,542 $11,689 $24,371 $23,080
======== ======== ======== ========
7. Supplemental Cash Flow Information
----------------------------------
Cash payments for interest for the six months ended October 31, 1999 and
1998, were approximately $421,000 and $1,790,000, respectively. Cash
payments for income taxes were approximately $10,770,000 and $12,110,000
for the same periods, respectively.
NCH CORPORATION AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
-------------------------------
In the six months ended October 31, 1999, working capital
increased to $207.0 million from $182.3 million at April 30, 1999,
and the current ratio was 3.1 to 1 at October 31, 1999, compared to
2.7 to 1 at April 30, 1999. The total of cash, cash equivalents and
marketable securities increased by $17.2 million in the first six
months to $40.2 million at October 31, 1999, as shown on the
Consolidated Balance Sheets. Net cash flows from operating activities of
continuing operations totaled $28.2 million. Additional cash was
provided by the borrowing of cash surrender values of company-owned life
insurance policies on key employees of $1.1 million. Principal uses
of cash consisted of net capital expenditures of $3.9 million,
payment of dividends of $3.8 million, and net purchases of
marketable securities of $2.8 million. During the year, the Company
purchased the assets of two small businesses for $1.3 million.
Management expects that operating cash flows will continue to
generate sufficient funds to finance operating needs, capital
expenditures and the payment of dividends.
The Company's international subsidiaries operate on a fiscal
year ending on the last day of February. The reported values of
both assets and liabilities of the Company's international
subsidiaries decreased as a result of the change in the Company's
composite spot rate at August 31, 1999, compared to February 28,
1999. This is reflected by the foreign currency translation
component of accumulated other comprehensive loss, which changed
from a $36.3 million reduction of stockholders' equity at April 30,
1999, to a $39.1 million reduction of stockholders' equity at
October 31, 1999.
Excluding the receivable relating to the sale of the net assets of
Resource Electronics Inc., accounts receivable decreased by $6.8 million
in the six months ended October 31, 1999 and inventories decreased by
$5.0 million in the six months ended October 31, 1999, as measured in
U.S. dollars and reported on the Consolidated Balance Sheets. As
stated above, the result of exchange rate deviations from the end of
the previous year to the end of the first six months was to decrease
the reported U.S. dollar values of both assets and liabilities. The
change in accounts receivable shown in the Consolidated Statements
of Cash Flows is exclusive of the effect of exchange rates on the
reported asset values, and shows accounts receivable (net of
provisions for losses) decreasing by $4.2 million for the six month
period. The decrease in accounts receivable was primarily in the
Company's international subsidiaries due to a 9% sales decrease in
the current quarter compared to the fourth quarter of last year.
The Consolidated Statements of Cash Flows shows inventories
decreasing by $4.5 million during the six months ended October 31,
1999, exclusive of the effect of exchange rates. The decrease in
inventory was primarily in the Company's domestic operation, due to
a focused management effort to reduce on-hand inventory of plumbing
products.
Accounts payable, accrued expenses and income taxes payable were
similarly affected by currency translation. These liabilities
decreased by $2.2 million when measured exclusive of the effect of
exchange rate changes, but decreased by $6.9 million as reported on
the Consolidated Balance Sheets. This decrease was a result of the
timing of payments associated with normal business activity, and the
result of exchange rate deviations from the end of the previous year
to the end of the first six months was to decrease the reported U.S.
dollar values of both assets and liabilities.
Net expenditures for property, plant and equipment amounted to
$3.9 million for the six months ended October 31, 1999, and
consisted of the installation and update of worldwide computer
systems and normal additions of operating equipment.
Total bank indebtedness, comprised of long-term debt, current
maturities of long-term debt and notes payable, exclusive of the
effect of exchange rate changes, decreased slightly during the six
months ended October 31, 1999. The decrease was due primarily to
the repayment of short-term loans in the Company's European
subsidiaries. The bank indebtedness shown on the Consolidated
Balance Sheets was slightly affected by currency translation, and
shows a decrease of $.2 million.
The directors of the Company declared a regular quarterly
dividend of $.35 per share on September 15, 1999, payable December
15, 1999, to shareholders of record December 1, 1999. Cash
dividends paid during the first six months of the fiscal year
amounted to $3.8 million.
During the prior fiscal year, the Company repurchased a total of
1,769,387 shares (of which 1,551,015 were repurchased during the
first six months of the prior fiscal year) of NCH Common Stock for an
aggregate price of $106.0 million.
In August 1998, the Company obtained a $50 million unsecured
credit facility from a group of banks which expires in August 2002,
and is available for acquisitions and general corporate purposes.
Interest on the credit facility is generally payable quarterly, at
the Company's option of the Eurodollar rate plus 0.6%, or the
federal funds rate plus 0.5% (which will not exceed the bank's prime
rate). The credit facility is governed by certain financial
covenants, including minimum tangible net worth and a maximum
leverage ratio. At October 31, 1999, the Company had not borrowed
any amount under this credit facility.
Year 2000 Compliance
--------------------
The Company uses and relies on a wide variety of information
technologies, computer systems and scientific equipment containing
computer-related components. The Company has addressed the
potential exposures related to the Year 2000 Issue on its
operations for the fiscal year 2000 and beyond. A review of key
financial, informational and operational systems has been
completed. Implementation and testing of necessary modifications
to these key computer systems and equipment to ensure that they are
Year 2000 compliant has been completed. The Company believes that
with these completed modifications, and contingency plans discussed
below, the Year 2000 Issue will not have a material adverse effect
on its business, financial condition or results of operations.
However, there can be no assurance that these modifications will
prevent a material adverse effect on the Company's business,
financial condition or results of operations. The financial impact
of any such material adverse effect cannot be estimated at this
time. The Company has contingency plans to deal with major Year
2000 failures, and such plans are constantly being monitored and
will be revised as necessary.
In addition to risks associated with the Company's own
computer systems and equipment, the Company has relationships with,
and is to varying degrees dependent upon, a large number of third
parties that provide information, goods and services to the
Company. These include corporate partners, suppliers, vendors,
financial institutions and governmental entities. There can be no
assurance that the systems of other organizations on which the
Company may rely will adequately address the Year 2000 Issue, or
that the failure of other organizations to address the Year 2000
Issue will not have a material adverse effect on the Company's
business, financial condition or results of operations. However,
most of the Company's suppliers and customers have been contacted,
and they have indicated that they are Year 2000 compliant. There
is not expected to be a disruption of business due to suppliers'
systems since the Company has numerous suppliers for its products.
The total cost of systems assessments and modifications
related to the Year 2000 Issue is funded through operating cash
flows and has not been material to date. The Company is expensing
these costs as incurred. The financial impact of making the
required systems changes is currently expected to be less than $2.0
million, almost all of which has been incurred by October 31, 1999.
The actual financial impact could, however, exceed this estimate.
Euro Conversion
---------------
On January 1, 1999, 11 of the 15 member countries of the
European Union established fixed conversion rates between their
existing currencies ("legacy currencies") and one common currency -
the euro. The euro is now trading on currency exchanges and can be
used in business transactions. Beginning in January 2002, new euro-
denominated bills and coins will be issued, and legacy currencies
will be withdrawn from circulation. The Corporation's operating
subsidiaries affected by the euro conversion are developing plans
to address the systems and business issues affected by the euro
currency conversion. These issues include, among others, the need
to adapt computer and other business systems and equipment to
accommodate euro-denominated transactions. The Corporation does
not expect this conversion to have a material impact on its
financial condition or results of operations.
Operating Results
-----------------
Second Quarter Comparison - Prior Year
Net sales from Continuing Operations for the second quarter of
fiscal 2000 increased 4% to $181.3 million as compared with $174.7
million in the same quarter of the last fiscal year. Domestically,
net sales in the second quarter of the current year increased 9% over
the same period in the prior year. International net sales, measured
on a local currency basis, and also in U.S. dollars, decreased 4%
compared to the second quarter of the prior year. Net sales for the
Chemical Specialties Group decreased $1.4 million, or 1% from the second
quarter of the prior year, due to lower international sales, partially
offset by higher domestic sales. Net sales for the Plumbing Products Group
decreased slightly compared to the prior year's second quarter, due
to lower international sales. Partsmaster Group's net sales
increased $.8 million, or 4% as compared to the same quarter last
year due to increased domestic sales. Net sales for the Landmark
Direct Group increased $2.6 million, or 32%, from the prior year's
second quarter, due to increased sales of first aid supplies. Net
sales for Other Product Lines increased $4.6 million, or 29% over
the second quarter of last year, primarily due to increased sales of
satellite broadcasting receivers and related products and increased
sales of pet products.
Operating expenses as a percent of net sales were 92.1% in the
current quarter compared to 92.2% in the second quarter of the prior year.
Consolidated operating income before other expenses and income taxes was
7.9% of net sales for the quarter ended October 31, 1999, compared to 7.8%
of net sales for the quarter ended October 31, 1998. Operating profit for
the Chemical Specialties Group decreased $.9 million, or 11% from the
second quarter of last year due to lower international sales and
higher international marketing expenses. Operating profit for the
Plumbing Products Group increased $1.0 million due to lower
operating expenses and reduced losses in the Canadian operation.
Operating profit increased $.2 million, or 12% for the Partsmaster
Group over the second quarter of last year due to increased sales
and higher domestic margins. The Landmark Direct Group had a $.2
million increase in operating profit as compared to the second
quarter of last year due to increased sales as discussed above.
Operating profit for Other Product Lines increased slightly as
compared to last year's second quarter.
In the quarter ended October 31, 1999, interest expense was $.9
million compared to $1.3 million in the same quarter of the prior
year. Interest income was $.3 million in both the quarter ended
October 31, 1999 and 1998. Revaluation of foreign currencies
resulted in a loss of $.1 million in the second quarter of the
current year compared to a loss of $1.0 million in the same period
last year.
Provision for income taxes was 41.6% of income from continuing
operations before income taxes in the second quarter of the current
year compared to 45.0% of income from continuing operations before
income taxes in the prior year. This decrease is due to variations
in individual country income levels and tax rates in the
international subsidiaries. Income from continuing operations was
4.4% of net sales for the quarter ended October 31, 1999, compared
to 3.7% of net sales in the quarter ended October 31, 1998.
The sale of the net assets of Resource Electronics Inc. resulted
in a loss on disposition of discontinued operations of $3.3 million (net of
income taxes of $1.8 million) in the current quarter. The operating
loss, net of income taxes, for discontinued operations was $.7
million in the current quarter as compared to $.1 million for the
same period last year.
Total net income, including the results of discontinued
operations, was 2.2% of net sales for the current quarter as
compared to 3.6% for the second quarter of last year.
Second Quarter Comparison - Preceding Quarter
Net sales from Continuing Operations of $181.3 million for the
second quarter of fiscal 2000 were 2% lower than the $184.3 million
net sales for the first quarter. International net sales were 12%
lower when measured in U.S. dollars, as a result of normal quarter-to-
quarter sales fluctuations and the effect of exchange rate changes, while
domestic net sales were 6% higher than the previous quarter. Net sales
for the Chemical Specialties Group decreased $5.6 million, or 5% from
the first quarter due to lower international sales, partially offset
by higher domestic sales. Net sales for the Plumbing Products Group
decreased $1.0 million, or 3% from the prior quarter due to lower
international sales. Partsmaster Group's net sales decreased $1.5
million, or 7% as compared to the first quarter due to lower
international sales. Net sales for the Landmark Direct Group
increased $2.0 million, or 22% from the first quarter due to
increased sales of first aid supplies. Net sales for Other Product
Lines increased $3.0 million, primarily due to increased sales of
satellite broadcasting receivers and related products and increased
sales of pet products.
Operating expenses were 92.1% of net sales in the current
quarter compared to 93.2% in the first quarter. Consolidated
operating income before other expenses and income taxes was 7.9% of
net sales for the quarter ended October 31, 1999, compared to 6.8%
of net sales for the quarter ended July 31, 1999. Operating profit
for the Chemical Specialties Group decreased $.5 million, or 7% from
the first quarter due to lower international sales and higher
international marketing expenses. Operating profit for the Plumbing
Products Group was relatively constant as compared to the prior
quarter. Operating profit increased $.4 million, or 19%, for the
Partsmaster Group over the first quarter due to increased domestic
sales and higher domestic margins. The Landmark Direct Group had a
$1.1 million increase in operating profit as compared to the first
quarter due to increased sales as discussed above. Operating profit
for other Product Lines decreased slightly as compared to the first
quarter.
Interest expense amounted to $.9 million in the three months
ended October 31, 1999, compared to $1.1 million in the three months
ended July 31, 1999. Interest income was $.3 million for both the
first and second quarters of this year. The revaluation of foreign
currencies resulted in a loss of $.1 million in current quarter
compared to a loss of $.8 million in the previous quarter.
Provision for income taxes amounted to 41.6% of income from
continuing operations before income taxes in the quarter ended
October 31, 1999, compared to 40.5% of income from continuing
operations before income taxes in the quarter ended July 31, 1999.
Income from continuing operations was 4.4% of net sales for the
quarter ended October 31, 1999, compared to 3.5% of net sales for
the quarter ended July 31, 1999.
The sale of the net assets of Resource Electronics Inc. resulted
in a loss on disposition of discontinued operations of $3.3 million as
discussed earlier. The operating loss, net of income taxes, for
discontinued operations was $.7 million for the second quarter of the
current year as compared to $.2 million for the first quarter.
Total net income, including the results of discontinued
operations, was 2.2% of net sales for the three months ended October
31, 1999, as compared to 3.4% for the three months ended July 31,
1999.
Six Months Comparison - Prior Year
Net sales from Continuing Operations for the six months ended October
31, 1999, increased 3% to $365.6 million as compared with $356.6 million
for the first six months of the last fiscal year. Domestically, net sales
increased 8% in the six months compared to a year ago. International net
sales were negatively affected by changes in currency translation rates and
decreased 5% as reported in U.S. dollars. When measured on a local country
currency basis, international net sales decreased approximately 3%. Net
sales for the Chemical Specialties Group decreased $6.1 million, or 3%,
from the six month period ended October 31, 1998, due to lower sales in
the international operation and to the effect of currency
translation rates. Net sales for the Plumbing Products Group
increased $1.7 million, or 3%, as compared to the prior year six-
month period due to higher domestic sales to major hardware
retailers. Partsmaster Group's net sales increased $2.0 million, or
5%, over the first six months of the prior year due to higher
domestic sales. Net sales for the Landmark Direct Group increased
$3.7 million, or 23%, from the same period of the prior year due to
increased sales of first aid supplies. Net sales for Other Product
Lines increased $7.7 million, or 26% over the six months ended
October 31, 1998, primarily due to increased sales of satellite
broadcasting receivers and related products and increased sales of
pet products.
Operating expenses as a percent of net sales decreased in the
six months this year to 92.7% of net sales compared to 92.8% for the
six month period ended October 31, 1998. Consolidated operating
income in the six months this year increased to 7.3% of net sales
from 7.2% of net sales in the six month period ended October 31,
1998. Operating profit for the Chemical Specialties Group decreased
$3.6 million, or 20% from the six month period ended October 31,
1998 due to higher international marketing expenses and lower
international sales. Operating profit for the Plumbing Products
Group increased $2.7 million as compared to the same period of last
year due to lower operating expenses and reduced losses in the
Canadian operation. Operating profit increased $.5 million, or 12%
for the Partsmaster Group over the first six months of the prior
year due to increased sales and higher domestic margins. Operating
profit for the Landmark Direct Group decreased $.1 million, or 11%
as compared to the six months ended October 31, 1998, due to higher
marketing costs. Operating profit for Other Product lines increased
$2.0 million due to increased revenue related to increased sales of
satellite broadcasting receivers and related products and increased
sales of pet products.
Interest expense was $2.0 million in the six months ended
October 31, 1999, compared to $2.2 million in the first six months
of the prior year. Interest income was $.6 million in the six
months this year compared to $1.1 million for the six month period
ended October 31, 1998. Revaluation of foreign currencies resulted
in a loss of $.9 million in the first six months of the current year
compared to a loss of $1.4 million in the same period of the prior
year.
Provision for income taxes was 41.1% of income from continuing
operations before income taxes in the first six months of the
current year compared to 44.2% of income from continuing operations
before income taxes in the prior year. This decrease is due to
variations in individual country income levels and tax rates in the
international subsidiaries. Income from continuing operations was
3.9% of net sales for the six months ended October 31, 1999 compared
to 3.6% of net sales for the six months ended October 31, 1998.
The sale of the net assets of Resource Electronics Inc. resulted
in a loss on disposition of discontinued operations of $3.3 million as
discussed earlier. The operating loss, net of income taxes, for
discontinued operations was $.9 million for the first six months of
the current year as compared to $.1 million for the same period last year.
Total net income, including the results of discontinued
operations, was 2.8% of net sales for the six months ended October
31, 1999, as compared to 3.6% for the six months ended October 31,
1998.
Forward-Looking Information
Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Quarterly Report
contain forward-looking statements that are based on current
expectations, estimates and assumptions regarding the worldwide
economy, technological innovation, competitive activity, interest
rates, pricing, and currency movements. These statements are
not guarantees of future results or events, and involve certain
risk and uncertainties which are difficult to predict and many of
which are beyond the control of the Company. Actual results and
events could differ materially from those anticipated by the
forward-looking statements.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K -- There were no reports on Form 8-K filed
for the three or six months ended October 31, 1999. The
exhibit filed as a part of this report is listed below.
Exhibit No. Description
10.1.4 Asset Purchase Agreement by and among
Carlton-Bates Company, NCH
Corporation and Resource Electronics,
Inc. dated as of October 29, 1999
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
NCH Corporation
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(Registrant)
Date December 15, 1999 /s/ Tom Hetzer
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Tom Hetzer
Vice President - Finance
(Principal Accounting Officer)